Examining the determinants of CO2 emissions caused by the transport sector: Empirical evidence from 12 European countries

Abstract

The transport sector is the second most important sector contributing to the production of CO2 emissions worldwide, and it is responsible for more than one third of the total energy consumption within the country-members of the European Environment Agency. With the overarching aim of mitigating climate change, policies, regulations, and new infrastructure investments are employed to facilitate the route to a low-carbon economy. In this paper, we investigate possible determinants of CO2 emissions caused by transport sector activity for 12 European countries from 1994 to 2014. We examine the effects of environmental policy stringency, climate change mitigation technologies related to transportation, and the share of value added by the transport sector and infrastructure investments (rail, inland waterways, and roads) on the amount of CO2 emissions caused by the transport sector. We employ panel data analysis – panel unit root tests, panel cointegration tests, the Fully-Modified OLS (FMOLS) approach, the Dynamic OLS (DOLS) approach, and the Granger causality test – in order to examine the relationship between CO2 emissions caused by the transport sector activity and their statistically significant determinants. Through our analysis, we highlight the importance of factors such as policies and technological innovation in the transition to a low carbon economy, something that is confirmed by our empirical findings. The empirical results of this study indicate that, for the examined countries: i) infrastructure investments do not seem to affect CO2 emissions caused by the transport sector; ii) CO2 emissions caused by the transport sector, environmental policy stringency, climate change mitigation technologies related to transportation, and the share of value added by the transport sector are cointegrated; and iii) both cointegrating regressions (FMOLS and DOLS) indicate that the environmental policy stringency and the CCMTs have positive policy outcomes (negative and statistically significant signs) on CO2 emissions, whereas the share of value added has a positive and statistically significant coefficient only in the case of the FMOLS method; iv) the panel Granger causality test presents a strong bidirectional causal relationship between environmental policy stringency index and CO2 emissions caused by the transport sector activity for one to three time lags. The findings of this study have important policy implications and warrant further research.